Weekly Market Commentary 09/21/2018

The next tranche of tariffs on Chinese imports is set to go into effect on September 24, but the tit-for-tat in the burgeoning trade war with China is not denting the bullish sentiment on Wall Street. Indeed, stock prices roared to new heights this week and interest rates continued to increase. Either investors are getting a case of battle fatigue with the ongoing trade saga between the world’s two largest economies, or they believe that the punitive measures, both taken so far and threatened, will not derail the U.S. growth engine that continues to display a good deal of firepower. Alternatively, the markets may be forging ahead on the assumption that both parties will dial down the slings and arrows before things reach cataclysmic proportions. From our lens, if the trade war escalates to the full extent of the tariffs threatened – 25% on the more than $500 billion of imports from China, and China retaliates by imposing similar tariffs on all U.S. exports – the toll on the U.S. economy would be significant, slicing as much as 1% from growth next year.